Wednesday, May 9, 2012

Fuel And Freight Rates Must Rise Says Sixth Largest Container Shipping Group

NOL Publish Gloomy Q1 Figures with an Honest Appreciation of the Situation
Shipping News Feature

SINGAPORE – WORLDWIDE – It is rare for us to see a financial statement which not only shows a parlous situation but indicates that, unless there is a major change in fuel prices and freight rates improve substantially the outlook remains poor and, when the forecast comes from the world’s sixth biggest container shipping company, one has to admire their candour and appreciate the seriousness of the situation. The first quarter figures from Neptune Orient Lines (NOL)hold very little good news for the industry.

NOL Group, the Singapore-based container shipping company which includes APL and APL Logistics, published Q1 figures today showing a jump in net losses from US$10 million for the period in 2011 up to a massive $254 million this year. The cause was put down purely to the drop off in freight rates due to the now inherent overcapacity which is plaguing the industry plus the rapid rise in fuel prices, figures achieved despite the estimated $100 million in costs saved by the group in the first three months of 2012.

Further savings are the cornerstone of the group strategy to survive its plight and management says it is on track to achieve around $500 million in total by cost cutting measures for this year principally through fuel economising and improved operational costs. NOL is also undertaking an organisational restructuring that it says will result in an additional annual saving of about $70 million from 2013 onwards. The company said that its organisational structure around the world will be streamlined to shorten decision cycles and respond better to market changes and evolving customer needs.

NOL’s supply chain management business, APL Logistics, reported a 7% increase in first quarter revenue to $394 million. Contract Logistics revenue increased 15% due mostly to strong demand for rail and land-based services from automotive customers. APL Logistics’ Core EBIT declined 38% from the first quarter of 2011 due to higher operating and technology costs related to growth initiatives. Core EBIT (Earnings Before Interest and Taxes) in the logistics business was $13 million. APL Logistics President Jim McAdam said:

“We increased revenue and sustained profitability despite economic uncertainty in key markets.Our emphasis remains on investing for profitable growth.”

APL, NOL’s liner shipping business, reported Q1 revenue of $2 billion, down 4% from a year ago. Revenue per FEU declined 7%, due mostly to the lower rates. Bunker fuel price increased from $523/metric ton in Q1 2011 to $684/metric ton in Q1 this year. APL reduced fuel consumption by 75,000 metric tons even though overall cargo volume increased 4% in the first quarter. APL President Kenneth Glenn commented:

“Rates have been moving up since March, but not yet enough to offset the high cost of fuel. Much more remains to be done to increase rates and manage down expenses.”

The group financial statement said that recent General Rate Increases have resulted in improved freight rates since March. However, the global economic outlook remains uncertain and the container shipping industry continues to face high fuel costs and overcapacity. If conditions for rates and fuel costs do not improve, the Group's financial performance will remain weak. NOL Group CEO Ng Yat Chung added:

“There were positive signs in the first quarter – the freight rate increases in March and growth in the logistics business. But we must continue to aggressively manage our operating costs, and streamline our organisation for greater efficiency.”

Ng Yat Chung took over as CEO from Ron Widdows, a thirty year veteran with NOL, last October when Widdows stepped down three months ahead of his proposed retirement date citing the ‘changing environment’ which both men said they felt would impact upon NOL’s business ‘well beyond the end of 2011’. Widdows was a revered figure at NOL having seen the group bounce back from the 2009 recession and remains Chairman of the World Shipping Council and CEO of  Rickmers Holding & Rickmers-Linie, posts he took on just last month.

N.B. All Dollar rates quoted are US.